An investor is a person or an entity that generates capital that many startups need. Investors are always looking for a return on their investment in the future. For this purpose, they seek to know more than just a great business idea or solid business plan. That is, they need to see whether you have proof of concept behind your thoughts. Further, they may be looking for a startup having a competitive advantage and significant market size. Since there is no guarantee that one can make money from investment, most investors research investment opportunities based on risk tolerance. Investors assist in the business plan, advise to manage funds precisely, and attempt to create goodwill for the startup, further attracting more investors to invest, thereby improving cash flows. Thus, it is essential to maintain a sustainable and robust relationship with investors because the success and growth of startups largely depend on them. As we all know that investors expect a financial reward in return, the type of investment preferred will decide which category an individual falls. Based on tactics and attitude towards investing, there are mainly three types of investors, which include;
Pre-Investors are those individuals who haven’t started investing. He may lack financial consciousness or awareness, which could change the direction of their lives. They are very little concerned about investing. Likewise, there’s little savings or investment to exhibit. Consumption needs rules pre-investors financial world which prioritize over savings and investment. These investors spend most of their entire income to cover monthly expenses with no money left for savings. However, it is possible to transform this mindset of pre-investor (unable to make income) entirely during this stage.
Additionally, some individuals may start to think about investing. Still, they haven’t moved to put capital into resources or have a company retirement plan, but the personnel department need not arrange it for them. When pre-investor procure more income, they start to spend more since lifestyle is more prior than monetary security. A pre-investor should set time to learn a thorough knowledge base about personal finance, current market situation, competition, to improve their stand and take action as an investor.
2. Passive Investors:
Passive Investors are those investors who are ready to leap into investing with low maintenance costs. It is the most common starting point for financial security, mainly supported by financial institutions, educational services, and websites. They often invest over a long time, adopting a buy and hold strategy, and generally depend on expertise like brokers, money managers, financial planners for their investment strategy since they lack the required knowledge and skill. In passive investing, investors buy and hold security (mutual fund, stock, real estate) at retail price for a more extended period with minimal trading in the market. Unlike active investors, since they ignore market fluctuations/setbacks, they may not expect profit from short-term gains. Index investing (Index ETF and index managed fund) is a typical example of passive investing. The positive side of passive investors includes- complete transparency over their investments. They know precisely where their cash is and can eliminate and reinvest it wherever they seem to be fit. Furthermore, when concerned about its negative side, it requires regular savings contribution to achieve financial security and generate lower returns when compared to other investors.
An active investor is an investor who takes more hand-on-approach intending to earn higher returns. He may dedicate his time and effort to save money, thereby making their money hard for them. The reason is that they need to focus on building active strategies that add value in return on capital, which is not an easier task. The main difference between passive and active investors is that passive investors aim to get market returns, whereas active investors aim to beat the market index. One significant advantage of active investors is that they receive two sources of return on investment:- market-based return and value-added return. If they can accurately assess the market and gain from price fluctuations, they can profit and quickly make trades from active investing. Also, they continuously monitor market conditions to identify short-term trading opportunities. They used to engage active fund managers to oversee investment on their behalf. This type of investor requires deep knowledge about wealth management to earn a return on their capital and a high confidence level to make investment decisions properly. The downside includes incurring higher transaction costs and higher risk to generate higher returns when compared to passive investing. Active investment can be a good choice for investors who have substantial time and energy to learn the pros and cons of marketing strategies.
WHAT TYPE OF INVESTOR DO YOU WANT TO BE?
Every investor is unique, having a different investment style. The right choice depends on the investor’s personal preferences, risk tolerance, and financial goals. So, there is no single answer to which will be suitable for everyone. The first step towards the investment journey is a clear strategy in place. For example, if you are interested in the stock market and have enough time and desire to put your efforts into accessing your funds, you may consider active investing. If you have enough years before retirement and working hard to increase your income without any interest in learning the ins and outs of the market, passive investing might be worth exploring. Pre-investor is the appropriate starting point for all individuals. They should take considerable time to learn about market conditions, personal finance options and step out from this stage to develop a vivid financial future.
Any individual can become an investor with just a little money at hand. Many people pass through these stages of investors as their knowledge, experience, skills develop. These three types of investors determine financial security and ways to advance your investment strategy to the next level. If you are confused about the right investment option – Sign up for a consultation with us. We are here to support you!